Small Reactors Generate Big Hopes

A new type of nuclear reactor—smaller than a rail car and one tenth the cost of a big plant—is emerging as a contender to reshape the nation's resurgent nuclear power industry.

Three big utilities, Tennessee Valley Authority, First Energy Corp. and Oglethorpe Power Corp., on Wednesday signed an agreement with McDermott International Inc.'s Babcock & Wilcox subsidiary, committing to get the new reactor approved for commercial use in the U.S.

Although none have agreed to buy a reactor, the utilities' commitment should help build momentum behind the technology and hasten its adoption across the industry. It's a crucial first step toward getting the reactor design certified by the Nuclear Regulatory Commission. Early support from the three utilities, and four others that are mulling the agreement, increases the odds that customers will come forward in the future.

The news comes just as President Barack Obama announced more than $8 billion in loan guarantees this week that would pave the way for the first nuclear power plant in the U.S. in almost 30 years. He has proposed accelerating nuclear development by tripling the amount of federal loan guarantees for reactor construction to $54 billion.

The smaller Babcock & Wilcox reactor can generate only 125 to 140 megawatts of power, about a tenth as much as a big one. But the utilities are betting that these smaller, simpler reactors can be manufactured quickly and installed at potentially dozens of existing nuclear sites or replace coal-fired plants that may become obsolete with looming emissions restrictions.

"We see significant benefits from the new, modular technology," said Donald Moul, vice president of nuclear support for First Energy, an Ohio-based utility company.

He said First Energy, which operates four reactors at three sites in Ohio and Pennsylvania, has made no decision to build any new reactor and noted there's "a lot of heavy lifting to do to get this reactor certified" by the NRC for U.S. use.

Indeed, the smaller reactors still could incite major opposition. They face the same unresolved issues of where to put the waste and public fear of contamination, in the event of an accident. They could also raise alarms about creating possible terrorism targets in populated areas.

Still, the sudden interest in small reactors illustrates a growing unease with the route that nuclear power has taken for half a century. What many regard as the first commercial reactor built in the U.S., in 1957 at Shippingport, Pa., was only about 60 megawatts in size. By the time construction petered out three decades later, reactors had grown progressively bigger, ending up at about 1,000 megawatts of capacity.

Now, after a two-decade lull in construction, the U.S. is gearing up for a robust revival of nuclear power. Expanding the nuclear sector, which currently produces 20% of the nation's electricity, is considered essential to slashing carbon emissions.

Companies such as NRG Energy Inc., Duke Energy Corp. and Southern Co. are planning large reactors that cost up to $10 billion apiece and can generate enough electricity to power a city the size of Tulsa, Okla.

But there is growing investor worry that reactors may have grown so big that they could sink the utilities that buy them. An increasingly global supply chain for big reactors also worries investors.

"We think the probability that things will go wrong with these large projects is greater than the probability that things will go right," said Jim Hempstead, senior vice president at Moody's Investors Service. He warns that nuclear-aspiring utilities with "bet the farm" projects face possible credit downgrades.

The large price tag has begun to spook some utility executives. John Rowe, the chief executive of Exelon Corp., which operates the nation's largest fleet of nuclear plants, had hoped to build a new reactor in Texas. But, having failed to get federal loan guarantees, he recently said he's having second thoughts.

Instead, his company is expanding the capacity of its existing nuclear plants and is looking at Babcock & Wilcox's design. Amir Shakarami, Exelon's senior vice president, said mPower provides "an alternative that is practical and scalable," offering a way to add zero-emission power in small amounts and avoid the rate shocks that accompanied big reactors in the past.

Already, the high cost of large reactors is generating friction among partners. CPS Energy and NRG Energy Inc. sued each other recently when CPS, a city-owned utility in San Antonio got cold feet about investing in a new nuclear plant that could push up power costs for its customers. On Wednesday, the two agreed to a settlement in which CPS will reduce its stake in the project to 7.6% from 50% in exchange for a $90 million payment from NRG and dropping its lawsuit.

The two agreed Wednesday to a settlement in which NRG will pay CPS $1 billion to reduce its ownership interest in the project so it can proceed.

For utilities, a small reactor has several advantages, starting with cost. Small reactors are expected to cost about $5,000 per kilowatt of capacity, or $750 million or so for one of Babcock & Wilcox's units. Large reactors cost $5 billion to $10 billion for reactors that would range from 1,100 to 1,700 megawatts of generating capacity.

While large reactors are built on site, a process that can take five years, the mPower reactors would be manufactured in Babcock & Wilcox's factories in Indiana, Ohio or Virginia and transported by rail or barge. That could cut construction times in half, experts believe.

Because they could be water-cooled or air-cooled, mPower reactors wouldn't have to be located near large sources of water, another problem for big reactors that require millions of gallons of water each day. That could open up parts of the arid West for nuclear development.

The first units likely would be built adjacent to existing nuclear plants, many of which were originally permitted to have two to four units but usually have only one or two.

Down the road, utilities could replace existing coal-fired power plants with small reactors in order to take advantage of sites already served by transmission lines and, in some cases, needed for grid support. Like any other power plants, these small reactors could be easily hooked up to the power grid.

One of the biggest attractions, however, is that utilities could start with a few reactors and add more as needed. By contrast, with big reactors, utilities have what is called "single-shaft risk," where billions of dollars are tied up in a single plant.

Another advantage: mPower reactors will store all of their waste on each site for the estimated 60-year life of each reactor.

Nuclear development moves at a glacial pace. The next wave of large reactors won't begin coming on line until 2016 or 2017, at the earliest. The first certification request for a small reactor design is expected to be Babcock & Wilcox's request in 2012. The first units could come on line after 2018.

However, some experts believe that if the industry embraces small reactors, nuclear power in the U.S. could become pervasive because more utilities would be able to afford them.

"There's a higher likelihood that there are more sites that could support designs for small reactors than large ones," said David Matthews, head of new reactor licensing at the Nuclear Regulatory Commission.

That twist has some observers worried. "Nuclear power requires high-level security and expertise to operate safely," said Edwin Lyman, senior staff scientist for the Union of Concerned Scientists. "It seems like something that should be concentrated rather than distributed" or dispersed.

Experts believe small reactors should be as safe, or safer, than large ones. One reason is that they are simpler and have fewer moving parts that can fail. Small reactors also contain a smaller nuclear reaction and generate less heat. That means that it's easier to shut them down, if there is a malfunction.

"With a large reactor, the response to a malfunction tends to be quick, whereas in smaller ones, they respond more slowly" which means they're somewhat easier to control, said Michael Mayfield, director of the advanced reactor program at the Nuclear Regulatory Commission. Once on site, each reactor would be housed in a two-story containment structure that would be buried beneath the ground for added security. They would run round the clock, stopping to refuel every five years instead of 18 to 24 months, like existing reactors.

For communities looking for job creation, the smaller reactors promise fewer jobs than a large plant, which offers 700 to 1,000 permanent jobs. Small plants would have to satisfy the same security and safety standards as large plants but likely would require a somewhat smaller work force because they would run much longer between refueling outages.

Some critics are convinced that nuclear power will never be cost effective, no matter what the size. Amory Lovins, founder of the environmental think tank, the Rocky Mountain Institute, said it's a "fantasy" to imagine that small reactors will be any better than big ones. He notes that nuclear energy is inherently expensive because of the special precautions that must be taken in the handling of nuclear fuel and nuclear waste, which are radioactive, not to mention the tight security at nuclear plants. Also, there still is no permanent federal site for nuclear waste.

The electricity industry was burned once before by nuclear power, and many utilities remain skittish.

Forty out of 48 utilities that issued debt for nuclear projects during the past construction cycle—20 to 30 years ago—suffered credit hits in the aftermath of the Three Mile Island accident in 1979, most with downgrades of four notches, said Moody's Investors Service.

Now some of these same companies are looking at the nuclear option again. Energy Northwest is a wholesale utility in Richland, Wash. It's the successor to the Washington Public Power Supply System, which acquired the unfortunate nickname of "Whoops," after it canceled construction of two partly built reactors in the 1980s.

At the time, the utility thought demand would grow briskly. Instead, the economy slowed and so did demand. Nuclear plant costs for the five units it planned to build swelled to nearly $24 billion in 1982 from $5 billion in the 1970s That set the stage for WPPSS's $2 billion bond default, at the time the largest in U.S. history.

Today, Energy Northwest is talking to NuScale Power Inc. in Corvallis, Ore., about a reactor design which measures 15 feet by 60 feet. Each unit would be capable of turning out 45 megawatts of electricity.

Jack Baker, Energy Northwest's head of business development, says he was initially skeptical about small reactors because of the "lack of economies of scale." But he says he now thinks small reactors "could have a cost advantage" because their simpler design means faster construction and "you don't need as much concrete, steel, pumps and valves."

"They have made a convert of me," he says.

Babcock & Wilcox's roots go back to 1867 and it has been making equipment for utilities since the advent of electrification, even furnishing boilers to Thomas Edison's Pearl Street generating stations that brought street lighting to New York City in 1882.

Based in Lynchburg, Va., the company has been building small reactors for ships since the 1950s. In addition to reactors for U.S. Navy submarines and aircraft carriers, it built a reactor for the USS NS Savannah, a commercial vessel which is now a floating museum in Baltimore harbor. It also built eight big reactors, in the past construction cycle, including one for the ill-fated Three Mile Island plant.

When a U.S. nuclear revival looked imminent, the company debated what role it could play.

"Instead of asking, 'How big a reactor could we make?,' this time, we asked, 'What's the largest thing we could build at our existing plants and ship by rail?' " said Christofer Mowry, president of Modular Nuclear Energy LLC, Babcock's recently created small-reactor division. "That's what drove the design."

As interest in small reactors grows, other makers of big reactors are dusting off old designs.

Westinghouse, a unit of Toshiba Corp., is taking another look at its 335-megawatt reactor called Iris. Mario Carelli, Westinghouse chief scientist, said his firm is considering marketing Iris to nations with small grids, "where a big reactor won't fit." He figures that's 80% of the world's grids.

Many obstacles remain. The NRC still is reviewing certification requests for five big reactors and won't be able to consider certifications of small reactors until its work load lightens. But Mr. Matthews of the NRC says he expects the commission will review as many as four small-reactor designs in the next two or three years.

Meantime, interest in small reactors is likely to grow.

"If we can't figure out how to build large plants economically, then small ones may be the way to go," said Ronaldo Szilard, director of nuclear science and engineering at the Idaho National Lab, part of the Department of Energy.